2022 (2) TMI 843 - HC - GST

Input tax credit - Seeking withdrawal of negative block of the electronic credit ledger of the Petitioners as visible from the extract of credit ledger - scope and applicability of Rule 86A - HELD THAT - One of the primary conditions in order to invoke Rule 86A is that the Credit of input tax should be available in the electronic credit ledger. Further, such credit should be claimed to have been (supported by reason to believe recorded in writing) fraudulently availed - Rule 86A is not the rule which entitled the proper officer to make debit entries in the electronic credit ledger of the registered person. The rule merely allows the proper officer to disallow the registered person debit from the electronic credit ledger for the limited period of time and on a provisional basis. In case debit entries are made by the proper officer, the same will tantamount to permanent recovery of the input tax credit and certainly permanent recovery is governed by the statutory provisions (Section 73 of 74 of CGST Act) and it certainly travels beyond the plain language and underlined intent Rule 86A. The fact or possibility of registered person availing and utilising the fraudulent credit persistently and continuously cannot be the basis to invoke Rule 86A - the power to restrict debit from the electronic credit ledger is extremely harsh in nature. The rule outreaches the detailed procedure provided in the legislature for determination of input tax credit wrongly availed or utilised provided in Section 73 and 74 of CGST Act and empowers the officer to unilaterally impose certain restrictions in compelling circumstances. In other words, Rule 86A is invoked at a stage which is anterior to the finalization of an assessment or the raising of a demand. Accordingly, it should be governed strictly by specific statutory language which conditions the exercise of the power. The respondents are directed to withdraw negative block of the electronic credit ledger at the earliest. The condition precedent for exercise of power under Rule 86A of the GST Rules is the availability of credit in the electronic credit ledger which is alleged to be ineligible. If credit balance is available, then the authority may, for reasons to be recorded in writing, not allow the debit of amount equivalent to such credit - there is no power of negative block for credit to be availed in future. The writ applicants are also entitled to the refund of ₹ 20 Lakh deposited by them to enable them to file their return. The respondents shall refund this amount of ₹ 20 Lakh to the writ applicants within a period of two weeks from the date of the receipt of the writ of this order. Application disposed off.

Summary

Issues Involved:
1. Legality of blocking the electronic credit ledger under Rule 86-A of the GST Rules when the balance is Nil.
2. Interpretation and application of Rule 86-A of the GST Rules.
3. Refund of the amount deposited by the writ applicants due to the negative block.

Detailed Analysis:

1. Legality of Blocking the Electronic Credit Ledger Under Rule 86-A When Balance is Nil:
The primary issue is whether the authority can block the electronic credit ledger under Rule 86-A of the GST Rules when the balance is Nil. The court noted that the power under Rule 86-A can only be exercised if there is credit available in the electronic credit ledger. The court emphasized that blocking the ledger with a Nil balance is beyond the jurisdiction and illegal. The court ruled that the condition precedent for the exercise of power under Rule 86-A is the availability of credit in the electronic credit ledger, and without such credit, the blocking is unlawful.

2. Interpretation and Application of Rule 86-A of the GST Rules:
The court analyzed the language and intent of Rule 86-A, which allows the Commissioner or an authorized officer to block the electronic credit ledger if there is reason to believe that the credit has been fraudulently availed or is ineligible. The court highlighted that the rule presupposes the existence of credit in the ledger. The court rejected the respondent’s argument that the term "equivalent to such credit" implies future credit, stating that it necessarily implies the available credit. The court further referred to various judgments and circulars to support its interpretation that Rule 86-A cannot be invoked without available credit in the ledger.

3. Refund of the Amount Deposited by the Writ Applicants:
The court noted that the writ applicants were coerced into paying an excess amount of approximately ?20 Lakh due to the illegal negative blocking of the electronic credit ledger. The court ruled that this amount, paid under protest, should be refunded. The court directed the respondents to refund the ?20 Lakh to the writ applicants within two weeks from the date of receipt of the order.

Conclusion:
The court allowed the writ application, directing the respondents to withdraw the negative block of the electronic credit ledger and refund the ?20 Lakh deposited by the writ applicants. The court emphasized that Rule 86-A can only be invoked if there is credit available in the electronic credit ledger, and there is no power to block future credit. The judgment underscores the importance of adhering to the specific statutory language and conditions for exercising such drastic powers.